Brexit uncertainty could hit car sales

November 22, 2016

Uncertainty over Brexit will lead to falls of up to 8% in car sales in 2017, a leading UK economist predicts. Jacob Nell, chief UK economist at Morgan Stanley, said the market would fall by a further 2% in 2018.

The drop is far higher than current forecasts from the Society of Motor Manufacturers and Traders (SMMT), which is expecting the UK new car market to decline by 5% from a final 2016 level of about 2.6 million units.

Neil argued that the drop would be caused partly by importers raising new car prices in response to the falling value of sterling.

In addition, car purchase decisions may be postponed because consumers are uncertain about the economic impact of Brexit.

UK Prime Minister Theresa May fought to restore business confidence yesterday during a speech to the Confederation of British Industry, promising lower business taxes and a ‘transitional Brexit’ so the UK avoids any sudden economic shocks from leaving the EU.

However, her plans face numerous challenges that make the UK’s long-term future difficult to predict. In particular, there is little certainty that the UK will be able to trigger the formal process of leaving the EU by its self-imposed deadline of the end of Q1 2017.

A legal battle has already ruled that MPs must hold a vote on the decision to trigger Article 50, to begin the two-year process for the country to leave the EU.

The government is appealing against the decision, but it was told last week that representatives from the devolved governments in Scotland and Wales will also be making their own arguments on Brexit during the hearing.

While Britain as a whole voted to leave the EU in the referendum, Scotland voted strongly to remain.

Scottish First Minister Nicola Sturgeon wants Scottish parliament to hold a separate vote on whether to trigger Article 50, not just the House of Commons.

A final ruling is not expected until early 2017.

While the uncertainty may not be good news for new car sales, it might ease pressure on the used car market, where residual values have been under pressure from years of rising volumes on the back of increased new car demand.

A fall in the number of cars being returned from the new car market would help to balance supply and demand in the used car market over the coming years and could stabilise used car prices.

This would require used car demand to remain strong during the Brexit process; recent figures suggest the market has proved resilient in the face of uncertainty.

Figures released by the SMMT revealed that more than 2.1 million cars changed hands in the used market during Q3 2016, rising 7.9% on the same period last year to achieve a new volume record.